Reagan Backs Conrail Sale to Norfolk Southern Corp.

WASHINGTON — President Reagan, hoping to speed the sale of Conrail in Congress, said Wednesday that a merger of the freight railroad with Norfolk Southern Corp. remained the best guarantee of its long-term financial success.

"After nearly 10 years of federal ownership and the provision of subsidies to Conrail, now is the time to get the government out of the railroad business," Reagan said in a letter to Transportation Secretary Elizabeth Hanford Dole.

"Norfolk Southern ownership of Conrail is the best guarantee of the financial strength of the railroad, so that Conrail will not revert to being a heavily subsidized ward of the taxpayer," he said in the letter.

The Senate is currently considering the sale of Conrail to Norfolk Southern, which has offered $1.2 billion. Dole selected the Virginia-based holding company last year from among a field of bidders, saying Norfolk Southern's resources would enable Conrail to survive an expected downturn in freight business in the future.

But opposition to the bid has arisen in Congress. A coalition of lawmakers led by Sen. Arlen Specter (R-Pa.) favors instead a $1.4-billion offer by a group of investors organized by Morgan Stanley & Co. of New York.

Specter believes a Conrail merger with Norfolk Southern would create a "mega-railroad" that would stifle competition. If the investors' bid were approved, they promise to sell the railroad within five years in public stock offerings.

Conrail management also favors the investors' bid.

But Reagan said the government's ability to reduce the deficit, projected at $220 billion for fiscal 1986, "is directly enhanced by the receipt of a minimum of $1.2 billion in cash which Norfolk Southern will pay the government once the bill is passed and the transaction is closed."

The sale, Reagan said, "will stand as a very visible example to the American people that this Administration is committed to privatizing functions which can be handled more efficiently by business than by government."

Since asking Congress to act promptly in his State of the Union address one year ago, Reagan said enough hearings have been held for lawmakers to have "carefully reviewed" the matter.

Conrail was created by the government in 1976 from the shells of the Penn Central and other railroads.

Once a drain on the taxpayer, Conrail said last week that it expected to report a net income of $440 million for 1985.

But Dole noted that the railroad eliminated 2,400 employees and listed more than 500 miles of lines for possible abandonment.